Cholamandalam Financial Holdings Ltd. (CHOLAHLDNG) Q4 FY22 Earnings Concall Transcript

Cholamandalam Financial Holdings Ltd. (NSE: CHOLAHLDNG) Q4 FY22 Earnings Concall dated May. 16, 2022

Corporate Participants:

Sridharan Rangarajan — Director

Suryanarayanan V — Managing Director

Venugopalan S — Chief Financial Officer

Analysts:

Praveen Agarwal — Axis Capital Limited — Analyst

Devansh Nigotia — SIMPL — Analyst

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Unidentified Participant — — Analyst

Yash Mehta — Steinberg Asset Management — Analyst

Presentation:

 

Operator

Ladies and gentlemen, good day and welcome to the Cholamandalam Financial Holdings Q4 FY ’22 Results Conference Call hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Praveen Agarwal from Axis Capital Limited. Thank you and over to you, sir.

Praveen Agarwal — Axis Capital Limited — Analyst

Thank you, Aman. Good morning, everyone. From the management team, we have Mr. Sridharan Rangarajan, Director of Cholamandalam Financial Holdings; Mr. N Ganesh, Manager and CFO of Cholamandalam Financial Holdings; Mr. V. Suryanarayanan, MD of Chola MS General Insurance; and Mr. S. Venugopal, CFO at Chola MS General Insurance.

So, I would request Mr. Sridharan to give us his initial remarks. Post which, we’ll open the floor for Q&A. Over to you, Mr. Sridharan.

Sridharan Rangarajan — Director

Thank you. So, good morning to all and hope all are doing well and your family also is doing well. Though the pandemic is slowly coming down, kindly take care of yourself. To start with, I think we have the entire team to answer and discuss with you your questions. Our MD, Mr. Suryanarayanan and Venugopalan, CFO of Chola MS General Insurance is there; Ganesh is also there, our CFO for Chola Financial Holding. We have posted the presentation so you have an opportunity to go through this and I’ll just quickly walk through a few of the highlights. So we are as usual consolidating NBFC, Chola Financial subsidiary and joint venture, Chola MS Risk. Continue to report under Ind AS as per the regulatory requirement. I’ll come straight away to the standalone financial performance. Chola Financial Holding’s income consists of income by way of dividend, interest, and royalty for brand use.

Total income for the quarter ending March ’22 is about INR50.85 crores against INR50.74 crores in the corresponding quarter of the previous year. Profit after tax is about INR36.3 crores against INR31.9 crores against the corresponding quarter last year. The consolidated results for the company consists of the results of Cholamandalam Investment Finance Company and Chola MS General Insurance as well as the Chola MS Risk, which is a joint venture. Total income for the current year ended — current quarter ended March ’22 increased by 6% to INR3,743 crores while the profit after tax increased by 220% to INR687 crores, primarily due to reduction in impairment charge on loans. I think there’s quite a lot covered in detail on Cholamandalam Investment Finance Company so I will go straight away into Chola MS General Insurance.

Chola MS General Insurance registered a GVPI of INR4,854 crores in FY ’20, an increase of 10.3% over the previous year driven by increased contribution from new channels and growth in commercial and SME segment offsetting the drop in financial channel. The growth excluding financial channel was 14.5%. The company continued well in changing the mix of product within the motor insurance. The share of two wheeler has gone — grown from 16% to 23% and private car share has grown from 25% to 29% resulting in a reduction in commercial vehicle share from 50% to 48%. The company maintained its leadership position in motor LOB in Tamil Nadu, Chhattisgarh, and targeting to reach Number 1 in Andhra Pradesh and Telangana. The company absorbed INR262 crores of opening balance of deferred acquisition costs as per IRDA advice. The company continues its good effort in making the compromise settlement.

The solvency as at March ’22 is 1.95 times after considering the disallowance of INR165 crores of taxes paid towards contingent liabilities as per IRDA circular. This has an impact of 0.19 times in solvency, which means the solvency needs to be 1.95 plus 0.19 in the normal course. The major concern I would say that Indian economy is inflation driven by crude oil as well as by the commodity price. The global yield on debt is increasing and along with that higher Indian government borrowing plan putting pressure on Indian debt market interest rate. Though such interest rate is beneficial for fresh investment in terms of the yield, the MTM value of the existing book would have a negative impact on profit booking. In summary, the company has addressed all the issues starting from provisional investment, absorption of DAC, and COVID claims. The company has invested in digitizing the process, customer interfaces, and analytics. It has strengthened the team, and would grow from strength to strength from here.

So, I would now open up for Q&A. Thank you once again to all.

Questions and Answers:

 

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Devansh Nigotia from SIMPL. Please go ahead.

Devansh Nigotia — SIMPL — Analyst

Yes, sir. Thanks for the opportunity. Sir, just couple of questions. Sir, one is in the asset quality we are seeing a 0.5% improvement. So GNPA improved from 0.8% to 0.3%, but no write-backs have flowed in the P&L. So if you can help us understand what exactly has happened over there?

Sridharan Rangarajan — Director

Devansh, could you please repeat your question. Asset quality — we can’t hear you well.

Devansh Nigotia — SIMPL — Analyst

So asset quality GNPA has improved from 0.8% to 0.3% Q-o-Q, but we are not seeing any write-backs that have come for us. So if you can help us understand?

Sridharan Rangarajan — Director

On the NPA part? This is on the — you’re talking NPA of the NBFC business, is that correct?

Devansh Nigotia — SIMPL — Analyst

No, the investment book of the General Insurance?

Sridharan Rangarajan — Director

Okay. Can you please go ahead with your next question. We will take note of that.

Devansh Nigotia — SIMPL — Analyst

So regarding investment book only if you can help us understand the fixed and floating bond mix so we can assess the incremental impact on the increasing yields on our fixed bonds which can come? So this was regarding the investment book. I mean in our operating expense, we are continuously seeing this stepup especially in advertisement and publicity expense. Even if I adjusted for the one-off the amortization which is happening, this amount has almost increased of 50% Y-o-Y so — and the kind of benefit we are not seeing in the business growth. The only benefit is probably the mix change that has happened in the motor business, but other than that we are probably growing in line with the industry or probably around that.

So when this growth can be higher than the industry and where exactly are these investment in ad expense? Are these ads that we see on the television or these are variable in nature for the distribution? So, that is one. In fire business also we are lagging growth compared to our peers and this is a highly profitable segment. So what exactly is happening there? In our prepaid expenses, the amortization was I think INR36 crores and INR80 crores was expected. So why lower amortization has happened and what is the current balance of prepaid expense, which is yet to be amortized?

Suryanarayanan V — Managing Director

Let me take some of these inquiries. I will take the last one first. So on the prepaid expenses, there is nothing that is left to be absorbed as at March ’22. IRDA had advised us to absorb the complete portion of prepaid expenses relating to sourcing costs by the year-end that is March ’22. So whatever you are seeing if at all anything on the balance sheet as prepaid expenses or normal prepaid expenses and there is nothing to do with sourcing costs. So there is no more overhang from the past. That’s the first point that I would like to clarify. And then there was a question on the investment book. There is — in the presentation deck, there is a complete analysis of the investment book overview. It is Page 53 of the complete presentation deck that is put out on the website.

Very clearly you can see that the change in portfolio is also happening where the gradual shift away from the said book into the housing infrastructure book is happening and there in housing infrastructure, we are investing only in the PSUs and infrastructure bonds of banks. These are bonds issued by ICICI, HDFC Bank, and Axis Bank are the ones that we are investing. So, this shift is happening. The question was also above the write-backs. Q1 are [indecipherable] that existed namely in Reliance Capital as also in ILSS. It’s by and large fully built with [indecipherable] and have only about INR12 crores of exposure that is open as it is with respect to ILSS. But we have that recovery certainly on the cards both in the case of ILSS s well as in Reliance Capital and these should get recognized on cash basis as and when these inflows happen hopefully in ’22-’23. So is there anything else that you require on the investment book?

Devansh Nigotia — SIMPL — Analyst

[Speech Overlap]

Suryanarayanan V — Managing Director

I will handle the investment book first, please.

Sridharan Rangarajan — Director

See, I think one other question asked is that how much is locked as fixed interest and how much is locked as variable interest. I think it is — everything is fixed interest, but you have a capability to sell and move. But we have bank deposits worth almost 8.7% of the entire investment book is kept to take advantage of the higher interest rate that will come in the future. So that’s how we kept the whole thing under the bank, which is like you can quit and then move to the higher interest rate.

Suryanarayanan V — Managing Director

So now I will move on to the other question, which is relating to OpEx. This year certainly was a year of transition where it is not just the opening prepaid expenditure that was absorbed, but also on the long-term business that we procured, also the complete cost that we absorbed so which is also reflecting in the overall combined OpEx and the commissioning costs so marketing costs and all of it. And as we have mentioned in our — even in our earlier calls, our long-term business proportion is roughly about 8% to 10% trading between 8% to 10% of our topline. These relate essentially to the dwelling businesses that we write where the typical payment goes up to 10 years and then the credit link, the personal accident businesses that we write where again it goes up to 5 years and in some of the benefit health policies that we write which goes up to 3 years.

So these are the long-term businesses that we write and to the extent that we have growth in volumes of these businesses, the P&L takes the hit upfront by way of maturation cost even though the earnings from the premium will flow over the period what I had mentioned with respect to each of these categories. So, this effect is there. But as the growth in these products stabilize, it will reach an equilibrium where you will not have any incremental advantages. You would also have noticed that our volumes from the presentation deck, that our volumes did go up rather sharply in Q4 both in the health as well as the TA side. For instance it is there in Slide 48 of the presentation deck, you would have noticed that our health growth in Q4 was fairly robust with about 46% and likewise, we returned back to the reasonable growth in personal accident in Q4. So all this also does mean that the cost gets absorbed upfront.

Devansh Nigotia — SIMPL — Analyst

Okay. Sir, but when we look at our OpEx as a percentage of net written premium is at 36% and that is almost 7%, 8% higher than our peers. So I’m still not able to understand where — why are we having such a big division because…

Suryanarayanan V — Managing Director

Let me explain that I wouldn’t know whom you are looking at peers. But to give you a perspective on how the cost actually peters out in the industry. Those companies which have a fairly large complement of government business, namely the crop business or any other government held business, are likely to have a lower OpEx because in those government businesses, there is nothing called sourcing cost or if at all it is there, it is very, very marginal more to do with the banking related costs by way of enrollment costs that they incur in the crop business. Otherwise there are no intermediaries. These are debtor businesses and therefore companies that have a high proportion of crop will have their cost structure fairly lower. Companies which do not have any crop business means that their business is largely intermediary driven and therefore to that extent you will find that the cost structure is at a different level. And going by numbers that we have seen with respect to competition, we believe that amongst companies that do not have crop business, we compare reasonably there. So that probably would explain why there is a difference of 6%, 7%, 8% whatever is there.

Devansh Nigotia — SIMPL — Analyst

Okay. So as a percentage of net written premium vis 36% as of now, what would be our outlook for let’s say next two to three years? How much should OpEx be as a percentage of net written premium?

Suryanarayanan V — Managing Director

One, as I said earlier that definitely on the operating expenses, the absorption base gets bigger as we grow and therefore it can reduce. I would tend to think that it can come down by about 1%, 2% at that level. Other than that given that the structure that we are unlikely to have any large government business on our GWP, we cannot — we may not be able to see a very substantive change because the sourcing costs would continue to exist. So, we may not be able to see a very substantive change there. But then the efficiency certainly will creep in on a larger base, that is definitely going to be there. And the OpEx related absorption would definitely trickle down and that definitely it will come into the P&L. So from the current level, we can certainly see about a 2% change is something that we can certainly look forward to.

Devansh Nigotia — SIMPL — Analyst

Okay. That was really helpful. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sanketh Godha from Spark Capital. Please go ahead.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Thank you for the opportunity. Sir, if you look at fourth quarter exit motor OD loss ratio seems to be — reported at 83%. So sir, it’s definitely very elevated compared to what we have reported in nine months of the current year or FY ’22. Sir, just wanted to understand if you want to extrapolate it to FY ’23, will you see this 83% as a new normal or 70% plus as a more normalish number to get into FY ’23? And if you assume — if you believe it is 70% to be kind of a number, then what could be the levers to achieve that kind of a figure? That’s question on motor OD. Similarly on motor third-party, exit has marginal increased at 67%. So we had a big lockdown benefit in the entire year especially in the first quarter. So just wondering whether we will go back to that 80%, 90% kind of a number in ’23 if things normalize as we enter into it? So sir, that’s on motor business. Now f you can answer this, maybe I have a couple of questions on health and investment book.

Suryanarayanan V — Managing Director

So first on the motor OD business, yes, 82.8% is one of the [indecipherable]. We certainly see that around the mid 70%s is what we look at the motor OD given the current competitive intensity in the market. What would bring it from the 82.8% is very clearly the effect on the earnings arising from the change in composition would start reflecting. For instance, you can see that our proportion of two-wheelers has been going up continuously. Be it earnings whatever we have grown, the full effect will be there in the current year and naturally between the various categories, we know that comparatively the OD loss ratios on two wheelers is lower than what we see in cars and commercial vehicles for that matter. So that weight reduction is what we bring in. Second element is also that the pricing certainly on the new vehicles is part of it.

The portfolio is also seeing an improving changing mix of new vehicles which is coming in. Last year it also meant that the proportion of older vehicles was much higher, but then the earnings impact arising from the new vehicles is certainly likely to be better or whatever we have done by way of new vehicle even in Q4 — Q3 and Q4 of the previous year, they are likely to reflect here. So these two would be very clear factors besides efficiency factor that would always be there. But then we also have to understand that there is also inflation push that will come in by way of both the parts prices as well as the labor charges. So while efficiency will take care of that, these two factors; the increasing proportion of new vehicles and the mix effect; is what is likely to bring our OD loss ratios down to the mid 70%s given the current market situation. So, this is on OD. On the motor TP, can I go ahead with the motor PC.

Sridharan Rangarajan — Director

No. Go ahead. You answer it.

Suryanarayanan V — Managing Director

So on the motor TP, yes, two years ’20-’21 and ’21-’22 did see some benefit coming out of the lockdown which is reflected in the P&L of not just Chola MS, but also across other insurers as well. This year all of us are likely to see an increase from the reported level for motor TP loss ratios. The anticipated price increase can be some relief, but it is still awaited. We expect the final notification to come through not just at that draft exposure level, but at a slightly higher level as well. But that can help smother down some cost push that can be there. We certainly see TP loss ratios going up from — definitely from the FY ’21 and FY ’22 levels. I would tend to think that are more likely to go closer to about our FY ’21 level is what I would tend to think that we will get to, which is at about we have reported 79.7%. So, we would certainly go closer to that.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Got it, sir. Perfect. And in motor TP given two-wheeler component increases so that acts as a buffer should play a role or even factoring that you think 80 is most likely the number to be reported in motor TP?

Suryanarayanan V — Managing Director

No. See, motor vehicle act impact is something that while it has been notified, we will have to wait to see how the courts react to it. But then yes, the real test would be on 1st October when it has to — when that six months would clearly have passed at least for the first days. So that is what would tell us very clearly as to how the courts are going to react. I’m not too sure if companies would start even seeing the benefit of that. They may act straight away by way of faster reporting. But then some other benefits that were in the [indecipherable] benefit by way of say recovery orders and those things can start showing some benefit from H2. So that one we can expect. But then we are not really factoring in any of these at this point in time. The good thing is that it has been notified. We’ll have to really wait and see as to how the courts react and actually implement the law.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Got it. Given MVA got implemented now so do you think any — because investment leverage has been the biggest — one of the biggest brownie points of our business model. So though it can improve potentially the loss ratio, the negative impact on the — assume that six months close gets potentially fully implemented on phase earlier. Any thoughts you have made on internal working you have made, which could have a potential impact on the investment leverage or float on motor TP business?

Suryanarayanan V — Managing Director

I think that should have given the larger proportion of the motor business as such, and also the fact that we’ve been doing fairly well on the long-term premium attrition, and the book size of long term premium has really been growing. And as said, March ’22, I think the number is now about INR1,200 crores?

Sridharan Rangarajan — Director

Yes.

Suryanarayanan V — Managing Director

So at that level, it’s obvious that the effect and change is going to continue. Yes, to an extent, with the faster reporting.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Can you hear me, sir?

Suryanarayanan V — Managing Director

Payments are also made earlier. But I think I would see that as more as a — while possible impact of challenge for ’23, ’24 and not necessarily for ’22, ’23. We have to first experience the faster reporting. That trend, we will have to establish that —

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

My broader question was that the benefit of cost ratio should be overwhelming the negative impact of lower deleverage, and therefore, net-net it’s ROE accretive. That’s the way you look at it?

Suryanarayanan V — Managing Director

Very clearly, very clearly, yes. Yes. Definitely, it augments the investment corpus, and therefore, the investment income. And to that extent, yes, it will really help the PBT, PAT and the ROE. That much is certain. Not any doubt at all.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Got it, sir. Sir, last two ones and two questions. One is on — see, again, even on health, given we did not have anything with respect to largely anything with respect to COVID in the fourth quarter. We usually — we usually are in health and CL less than 50% combined our logistic company in the historical past. I know the indemnity part has gone up and all those things, but still at 79% kind of loss ratio in the fourth quarter in health and PA put together, it looks a little on the higher side. Again — again, wanted to understand why it led to the deterioration? And finally, if you can disclose the average duration of the bond, what we hold? That will be useful, sir.

Suryanarayanan V — Managing Director

Yes. If you see the proportion as compared to the past, the proportion of indemnity and benefit of products help us different for the current year, especially with the financial channels and the consequent attachment businesses of PA and benefit health products not really seeing much of the optimum level. But then we did see the change in trend in the Q4, we have seen a larger proportion of benefit products coming back and the PA products coming back, which should help reduce the health travel and PA loss ratios further from the Q4 level of about 78.9%.

But it may not go back to our historical levels of 40% or 42%, but because there is an indemnity in business which is there, and the indemnity businesses cannot be run at that kind of loss ratio. So we would only tend to think that this 78.9% can definitely go down to about 70% as we go along, which is a fairly acceptable loss ratio for that portfolio. That is all we would like to look at it.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Sure. Sir, the current mix of health into indemnity and benefit, if you can disclose?

Suryanarayanan V — Managing Director

Yes, presently, we are at somewhere around at our — for example, we’ll be — our retail, our indemnity benefit books, something at around 38%-62%, 38% indemnity and 62% was the bundled benefit products. So this is what I’m saying. So this is a — while we would want them to be 50-50 while the growth of indemnity over a period of time, the higher proportion of benefit is actually beneficial in terms of balancing the last ratio.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Sir, 38%-62% what you have given is only health, right? It is not health and PA put together, right?

Suryanarayanan V — Managing Director

No, it is actually health and PA put together.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Okay. Okay. Okay. Got it, sir. And last, if you can speak about the duration of the bonds?

Suryanarayanan V — Managing Director

Duration, Venu correct me if I’m wrong for I’m talking from memory here, so our duration was at about 3.4 years.

Venugopalan S — Chief Financial Officer

Yes. Yes. 3.5.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Okay.

Suryanarayanan V — Managing Director

That is what we are. So for [Indecipherable] as Sridhar mentioned earlier in the call, we have a fairly large component in bank deposits and we redeployed for advantage. Of course, it is factored in the duration working, but then that is the flexibility that we have without losing anything on the interest rate.

Sanketh Godha — Spark Capital Advisors (India) Private Limited — Analyst

Got it, sir. Perfect. Thank you. That’s it from my side.

Operator

Thank you. [Operator Instructions] The next question is from the line of Kaushik [Phonetic] from Broadview Research. Please go ahead.

Unidentified Participant — — Analyst

Hi. Good morning. Sorry to enter a little bit late, I also have few easy questions. First is on the provisions and all cost absorption that you mentioned that the company has taken from here, so the right reflection of the current year FY ’22 activity is what INR350 crores in your view? What is the base on which we can expand and build growth from here?

Suryanarayanan V — Managing Director

I think base level is about INR300 crores.

Unidentified Participant — — Analyst

Okay. And just one broader question was that if you look at the investment book, which is around INR12,500 crores now, which was INR9,300 crores a couple of years back, and that’s growing from here. So if one was to look at close to 7% or 6.5%, 7% growth, I mean, investment return on that book which is growing, you are kind of with the INR900 crores of investment income. And even if the GWP were to grow at 12% to 14% from here, and you kind of modeled a 107% core at the overall level, unlikely that we’ll lose anything more than INR350 crores, INR400 crores.

So is it fair to say that INR500 crore PBT of the business is more or less a fair reflection maybe a year or two out for the business? If not this year, then next, but at some point, we should logically arrive at that number? Is it a fair way of understanding the way or the direction in which we are heading?

Suryanarayanan V — Managing Director

Your assumptions certainly on the investment book side earnings and, that is quite logical and we do intend to concur with that. On the core business side, let’s — the last year, ’21, ’22, we returned back to the growth path with a 10% plus growth. The numbers for April around, and therefore, I can say that we have begun the new year, well? April was of course on a much — the base effect was certainly there, both for industry and also for Chola MS but we’ve begun the year as well. But as growth rate increases, you will find that there will always be the pressure of absorbing cost upfront. So that pressure will be there. So definitely, it’s on a — over a two-year period, we certainly see very clearly things that are stabilizing down to a good level of profitability.

Unidentified Participant — — Analyst

Okay. Thank you so much. And all the best.

Operator

Thank you. The next question is from the line of Yash Mehta from Steinberg Asset Management. Please go ahead.

Yash Mehta — Steinberg Asset Management — Analyst

Hello. Thanks for the opportunity. Am I audible?

Sridharan Rangarajan — Director

Yes.

Yash Mehta — Steinberg Asset Management — Analyst

Hello. Yes. So sir, I just wanted to, first, juxtapose your comment on competitive intensity with the change in composition of our business. Now, as I see over the last three, four years, you’ve increased the share of passenger vehicles, 2-wheelers and private cars both, at the same time reducing the share of CV. My question is what is allowing us? Who is — how are we able to kind of gain share in these favorable segments, especially when there has been a rise in competitive intensity in the industry? So that’s my first question. The other two are not related. Yes.

Suryanarayanan V — Managing Director

Yes. No, let me proceed to answer. We have grown fairly strongly in the 2-wheeler space. As I have even mentioned even in the earlier calls, the driver has been the entry into several OEM programs, which has actually helped us gain a market share of about 15% in new 2-wheelers that are sold in the country. We are present in almost all OEM programs in 2-wheelers.

Likewise in cars, we are — we have added our OEM partnerships. For example, last year, ’21, ’22, we impaired the Renault Nissan partnership where we are one of three players in the program. That has helped us grow. We’ve been stepping up our market share in, presently, the Hyundai business. We continue to be a fairly significant player in the Toyota business. Maruti, we operate in a few states that have been allotted to us.

So these are the drivers behind the growth. And [Indecipherable] even said this in earlier calls, our present Tier 3 towns have helped us leverage our — even the motor business pretty well, not just in the older vehicles where the priority is within the business. But also, we are able to reach out to the dealerships in these markets better because of our market presence there. So that is what has helped us grow in both cars and 2-wheelers over the last couple of years, or last three years fairly significantly.

Yash Mehta — Steinberg Asset Management — Analyst

Understood. And would it be a fair assumption to say that, let’s say, given that we’ve done like many other players that competitors would want to enter into and get share of the OEM business. The higher expense ratio that we see in our shareholders’ account, is that — like, is it a profit and loss account? Is that a reflection of lower margins on OEM because you were having to pay to the OEMs effectively to get share from them?

Suryanarayanan V — Managing Director

Yes. So without getting into whom do we pay, see the competition — competitive intensity is not just on the payout, but it is also on the level of premium discounts that are prevailing. There was an earlier question on motor OD loss ratios heading into the north, not just for us, but for almost the entire industry. Driver is essentially the discounts that will prevail for various categories and various products. And there is a lot of difference also. The discount level for a new vehicle will be very different, the discount level for us. Consequently, on a first year renewal, we’ll have to follow it, it can’t be any different because the customer is going to see the price, having bought our premium for a new vehicle at a certain discount. Next year, he’s not going to pay anything more, a rupee more, especially [Indecipherable].

So the first year premium often is a — sets the benchmark for the median level in the first two subsequent years. So therefore I have certain product by cascading with it, and which is where the competitive intensity is fairly high. Because everybody wants a newer vehicle. I also talked about that the newer vehicles earned premium is higher, and therefore, that we help the lastly shutdown is what I mentioned a few minutes back. So that is what — cars is the competitive intensity.

Yash Mehta — Steinberg Asset Management — Analyst

Understood. And you have mentioned that the financial channel has been declining. Now, sorry if this a decent question people will understand. In regular, we have seen a recovery in the [Indecipherable] grow along. Or there are some structural reasons for the decline in the financial channel?

Suryanarayanan V — Managing Director

No, we are seeing the revival in that channel. We’re seeing the revival. The last two years, the financial channel had their own problems to compelled with in terms of portfolio management and otherwise. Now, we do certainly see in Q4, we did see some change. And even in the month of April, we are seeing some change there. And in fact, even in the financial channels, we keep only adding partners there, and therefore, we certainly expect that volumes to improve. And therefore, in the composition that was mentioned earlier, we would tend to think that our CV would still more or less continue at around the mid-40s is what we would tend to think in terms of the motor composition.

Yash Mehta — Steinberg Asset Management — Analyst

Mid-40?

Suryanarayanan V — Managing Director

Mid-40.

Yash Mehta — Steinberg Asset Management — Analyst

Composition — motor composition of —

Suryanarayanan V — Managing Director

Commercial vehicles. The proportion of commercial vehicles in the amount of business.

Yash Mehta — Steinberg Asset Management — Analyst

Understood. Fair enough. And my last question is, sir, last quarter, you mentioned INR350 crores as a baseline PDP. In the current call, if I heard it correctly, it is around INR300 crore. My only question, what is the diversion here? And from like in a quarter’s time, and as long as — as far as the resumption to profitability is concerned, when would that be visible?

Suryanarayanan V — Managing Director

Generally, we don’t give out any estimates of our profit, so these are just larger numbers that we discuss. The only point is I will only keep saying is that, definitely, next year, we are poised for much better growth, even possibly a better growth rate, than that we had for ’21, ’22. And as growth comes in, it is going to have an effect on the [Indecipherable] by way of upfront obstruction, so that is the only possible reason. But — and then definitely the — some tailwinds are possibly the higher yields on the investment book side, which can always come in at a beneficial factor that [Indecipherable]. So what we have indicated, it’s more a ballpark number at those levels than specific numbers.

Yash Mehta — Steinberg Asset Management — Analyst

So no incremental negative? So no incremental negative from last quarter to this quarter?

Suryanarayanan V — Managing Director

Sorry, I don’t talk — have not heard you right. Venu, can you take this?

Yash Mehta — Steinberg Asset Management — Analyst

Incrementally, no negative development? So from Q3 to Q4 in that —

Suryanarayanan V — Managing Director

So far, I tend to think that there is no negative agreement there. Except that some of the lockdown benefits that was mentioned earlier, that will not obviously recur. So to that extent, things are back to normal.

Yash Mehta — Steinberg Asset Management — Analyst

Understood. Fair enough. Thank you very much for the opportunity.

Operator

Thank you. [Operator Instructions] The next question is from the line of Deepak Sonawane from [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

Yes. Am I audible, sir?

Operator

Yes, please go ahead.

Unidentified Participant — — Analyst

Yes. Yes. Yes. Thank you for the opportunity, sir. I’m [Technical Issues] So like other players, all the leading players, have you taken the price hike in motor loading, especially in Q4 FY ’22?

Suryanarayanan V — Managing Director

We — the point is, our business model is also from where we get a fair chunk of business from the financials as well as our own insurance express outlets across the 460 towns that we have, which essentially deals with the older vehicles. In there, in that older vehicles, which we have made some corrections on the price. From the SUVs, as well as in the used cars, the older cars business, there we have done. Under new, yes we are still watching the situation, we will need to make those corrections and of course we are also in discussion with our other insurers, other companies so that there is some collective sense than can come.

Unidentified Participant — — Analyst

All right, sir. Thank you so much. And my second question is regarding our or motor book mix. So if you can give you — give us any differentiation I mean a contribution of new and used vehicle in that overall motor book for FY ’22?

Suryanarayanan V — Managing Director

So roughly we would like — would have about 40% of the premium coming in from the new vehicles. Somewhere between 40% to 42% would be the new and then the balance would be the — it could be even a one year or two year, but then does not. So the 58% — 58% to 60% would be the older vehicles.

Unidentified Participant — — Analyst

All right. And my last question is regarding, sir, electric vehicle. So what is the contribution of electric vehicle towards overall motor book?

Suryanarayanan V — Managing Director

We do have a fairly reasonable presence in the electric two wheelers where our market share is at about 8% now. That is what it is. We are not so much present in electric cars. Not much has really happened in that space and we also have a small presence more kind of R&D type of presence in the electric two wheelers which is there. But electric two wheelers is a decent presence and over the last six to eight months our experience is in these numbers.

Unidentified Participant — — Analyst

All right. Thank you so much, sir.

Operator

Thank you. Next question is a follow-up question from the line of Devansh Nigotia from SIMPL. Please go ahead.

Devansh Nigotia — SIMPL — Analyst

Sir, thanks for the follow-up. I just wanted to understand your investment book. We are seeing a step-up in equity so what is our overall strategy there? I mean are we going to increase this mix to increase the yield on the overall book? If you can just give some perspective.

Suryanarayanan V — Managing Director

Sorry, I could not hear the question clearly.

Devansh Nigotia — SIMPL — Analyst

So I wanted to understand what is our overall strategy in terms of increasing our equity exposure in our overall investment book. So as of now, it is very negligible. But considering the duration of our investment book, are we looking to increase this exposure over there or what is our overall strategy?

Suryanarayanan V — Managing Director

Definitely we would step up our exposures of equity in our investment book. Yes, we would like to have over the medium term up to 5% there and over a period of one year, we would like to take it up to anywhere up to 12%.

Devansh Nigotia — SIMPL — Analyst

Okay. And what would be our team size of our team which is dealing with equity investments?

Operator

It seems we have lost the line for Suryanarayanan. Please wait while we reconnect him.

Sridharan Rangarajan — Director

Could you please repeat the question please. We can’t hear. You said what’s the…

Devansh Nigotia — SIMPL — Analyst

If you could just help us understand the team size of the equity investment book, the fund manager or are we looking for some recruitments or…?

Sridharan Rangarajan — Director

So we have a CIO and we have two research analysts backed up by him and we also have links to other research firms to support our investment activity.

Devansh Nigotia — SIMPL — Analyst

Okay.

Operator

Thank you. We also have Mr. Suryanarayanan on the line.

Devansh Nigotia — SIMPL — Analyst

My question has been answered. Thank you.

Operator

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for their closing remarks. Thank you and over to you.

Sridharan Rangarajan — Director

So, I think thanks a lot for the participation and we feel that Chola MS General Insurance have weathered quite a lot of challenge in the last couple of years. It’s a very solid franchise that we have built. We have also invested heavily in the digitization process. We feel that I think the growth is here to stay for us and then we will see — go from strength to strength from here and that could be message at this point in time. Thanks a lot again for your participation.

Operator

[Operator Closing Remarks]